SEC Obtains Jury Verdict In Scholastic Corp. Insider Trading Case

SEC NEWS DIGEST
Issue 2004-145 July 29, 2004

The Commission announced today that on July 22 a federal jury found two
Orlando-area real estate agents, Donna Yun of Longwood, Florida, and
Jerry Burch of Heathrow, Florida, liable for illegal insider trading in
options on the stock of Scholastic Corporation. The jury returned its
verdict after a three-day retrial presided over by U.S. District Judge
Anne C. Conway.

In its complaint, filed on Feb. 3, 1999, the Commission alleged that on
or before Tuesday, Feb. 18, 1997, Yun's husband, then an officer of
Scholastic, told Yun in confidence that Scholastic would announce that
it expected a loss for the quarter ending Feb. 28, 1997, and that the
price of Scholastic common stock would likely decline as a result. Yun
breached her duty of confidence and disclosed the inside information at
a cocktail party that Tuesday evening to her friend and colleague of six
years, Jerry Burch. During the following two days, Burch purchased 130
Scholastic put option contracts, including 10 February contracts that
expired within 48 hours, that would rise in value if Scholastic's stock
price went down. After Scholastic released its negative earnings
announcement on Feb. 20, 1997, Scholastic's common stock price dropped
approximately 40 percent, from $61.50 to $36.75. On February 21, Burch
exercised his options for a net profit of approximately $269,000 - a
1300 percent return on his two-day investment.

The case had previously been tried in December 2000. In the first
trial, the jury also found both Yun and Burch liable for insider
trading. However, on appeal, the United States Court of Appeals for the
Eleventh Circuit vacated the district court's judgment based on
prejudicial error in the district court's jury instructions. The
appeals court remanded the case for a second trial.

At the second trial, the jury determined that Yun and Burch had violated
Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
thereunder. At a later date, Judge Conway will determine the
appropriate relief against Yun and Burch, which may include permanent
injunctions, disgorgement of the ill-gotten gains, and civil penalties.
[SEC v. Donna Yun and Jerry Burch, Case No. 6:99-cv-117-ORL-22KRS USDC,
MD FL, Orlando Division] (LR-18805)